April 3, 2011
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When employees are presented with changes to their conditions of employment, they will often claim constructive dismissal and leave their employment to pursue a claim for notice. A recent decision makes it clear that there is no principled reason why employees can't continue to work for their employers in mitigation of their loss while still pursuing claims for constructive dismissal.

In Russo v. Kerr Bros. Ltd., [2010] O.J. No. 4654, a constructive dismissal case decided after the Ontario Court of Appeal's decision in Wronko v. Western Inventory Service Ltd., [2008] O.J. No. 1589, summary judgment was granted in favour of an employee who continued to work with the employer while the matter was being litigated. The court grappled with Wronko, which stipulates three possible outcomes when an employee is faced with changed terms of employment: the employee can (1) accept the change and continue employment on new terms; (2) reject the change and claim constructive dismissal; or (3) reject the change and insist on adherence to the original terms.

Kerr was a manufacturer of candy products that had been in business for 114 years. More recently, Kerr ran into financial difficulty. Russo was 53 years old, had worked for Kerr for 37 years and was the warehouse manager. He earned a significant compensation package that included $114,000 in salary, an annual bonus and a pension plan.

In April 2009, Kerr hired a new president to assess the company's financial viability. The president quickly came to the conclusion that the remuneration packages for all employees were beyond what Kerr could afford.

The president asked all employees to immediately accept a 10 per cent reduction in their salary and eliminated the pension plan. After initiating the changes, the president determined that further cuts were needed. He approached Russo and three employees and asked them to accept a pay decrease and eliminated their bonus compensation. In Russo's case, his salary was reduced by $60,000.

In response, Russo's counsel wrote to the president alleging a constructive dismissal and advised that Russo did not accept the changes to his compensation. However, unlike most constructive dismissals, Russo opted to continue to work for Kerr, characterizing his continued employment as mitigation of his claim. Russo commenced a claim for constructive dismissal and sought summary judgment.

Kerr did not dispute Russo was constructively dismissed, but argued that by continuing to work, Russo accepted the new terms. Kerr took the position that Russo, within a reasonable period of being constructively dismissed, had to elect to accept the new terms or accept the dismissal and leave his employment. Since Russo stayed, Kerr argued he was deemed to have accepted the changes.

The court, applying Wronko, found that Russo rejected the alteration of his terms as a constructive dismissal. Furthermore, Russo was entitled to continue to work as mitigation even though Kerr never specifically offered him that option. In other words, Russo's continuing to work could not be viewed as acceptance of the new terms.

Kerr then effectively had its own election to make once Russo advised he was constructively dismissed: it could ask Russo to leave the workplace or keep the old terms in place for the period of reasonable notice. Kerr did neither. Russo was therefore entitled to mitigate his loss by remaining employed. However, working as mitigation can only be "for a period constituting reasonable notice" — in other words, at the end of the reasonable notice period, Russo had to work on the new compensation terms permanently. Given his age, length of service, position and Kerr’s economic circumstances, the court concluded a 22-month notice period was appropriate.

The court also addressed how to award summary judgment to an employee who was still working for the employer and where the notice period was not completed at the time of judgment. Other courts addressed the issue by imposing a trust on the damages awarded in favour of the employer for any income earned in mitigation during the balance of the notice period. The court expressed reservations about the "trust" approach (particularly its jurisdiction). Instead, the court came up with a practical solution; it granted summary judgment for the damages accrued up to the date of the decision, and adjourned the balance of the motion, to be determined after the expiry of the notice period.

This decision serves as a reminder that employees can pursue a constructive dismissal claim while continuing to be employed. Counsel should ensure their clients clearly communicate they are not accepting the altered terms and that continued employment is only to mitigate their loss.

Faced with such a communication employer counsel will need to advise their clients they have their own election to make: ask the employee to leave (with an appropriate severance offer) or keep the old terms in place for the period of reasonable notice.

Steve Levitt practises employment law with Nelligan O'Brien Payne LLP LLP, a full service law firm in Ottawa.

[This article is reprinted with permission and first appeared in the March 2011 issue of The Lawyers Weekly.]

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2017 Nelligan O’Brien Payne LLP.

Service: Employment Law